On 05 April, 2016 – A global retreat
Stocks tumbled on growth worries.
United States
Stocks declined as investors fretted about more dire predictions about the global economy. Markets were down after the head of the International Monetary Fund, Christine Lagarde, warned in a speech that the global recovery remains “too slow.” The Dow Jones industrials were down 0.8 percent and the S&P and Nasdaq were 1.0 percent lower. Declines accelerated in the final minutes as banks paced the retreat.
Christine Lagarde, the head of the International Monetary Fund, warned in a speech that “the recovery remains too slow, too fragile.” She said that the world economy was not in a crisis but that slow growth risked becoming ingrained as a “new mediocre.” She noted that the outlook for the next six months had weakened, suggesting that the fund might lower its forecasts.
Allergan plunged after the Treasury Department announced tax rules that would make the company’s merger with Pfizer more difficult. Disney slumped after the heir-apparent to the job of chief executive, Tom Staggs, said he was leaving.
Fed Bank of Chicago President Charles Evans said in a TV interview today the UK’s “Brexit” vote and the US presidential elections are fueling uncertainty, complicating decisions for policy makers as well as businesses and investors.
March services industries activity picked up according to the ISM nonmanufacturing index, indicating the economy was improving after a sluggish start to the year. A separate measure showed the US trade deficit widened in February to a six-month high as an increase in imports exceeded a more modest pickup in shipments overseas.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$11.50 to US$1,231.25. Copper futures were down 0.1 percent to US$2.14. WTI spot crude was up 28 US cents to US$35.98. Dated Brent spot crude was up 29 US cents to US$37.98. The US dollar was up against the euro, pound and the Canadian and Australian dollars. However, it declined against the yen and Swiss franc. The Dollar Index was up 0.1 percent. The yields on both the US Treasury 30 year bond and 10 year note were down 6 basis points to 2.54 percent and 1.72 percent respectively.
Europe
Shares tumbled as oil prices hit one month lows on fading hopes for an output curb by oil producers and disappointing economic data. The FTSE was down 1.2 percent, the CAC declined 2.2 percent, the DAX dropped 2.6 percent and the SMI lost 0.8 percent. The financial stocks remained under pressure after the revelation of the Panama Papers.
Germany’s February factory orders were down 1.2 percent on the month to hit a six-month low. At the same time, the country’s March composite PMI reading was 54.0, down from 54.1 in February amid a further slowdown in service sector activity growth. France’s composite PMI stood at 50.0, well below the flash estimate of 51.1. Eurozone retail sales grew at a slightly slower pace in February and British service sector growth also improved less than expected in March.
Peugeot Citroën shares dropped after the car maker announced a new “Push to Pass” business plan that will see it deliver 10 percent revenue growth by 2018 compared to 2015. BMW, Daimler and Volkswagen also declined. ThyssenKrupp shares retreated after Brazilian metals and mining company Vale said that it would sell its total stake of 26.87 percent in Companhia Siderurgica do Atlântico to ThyssenKrupp as part of its initiatives to streamline its asset portfolio. French telecom stocks Bouygues and Orange retreated. Total, BP and Royal Dutch Shell declined along with BHP Billiton, Glencore and Rio Tinto. Tesco was down on a broker downgrade.
Macroeconomic data also did not help the market. A closely watched survey suggested that Britain’s economy had slowed since the start of this year as worries about the global economy, government spending cuts and a vote on staying in the European Union took their toll.
Asia Pacific
Most Asian shares retreated with the exception of mainland Chinese stocks. They rallied as investors returned from a long weekend. Risk aversion returned to markets as oil extended overnight losses on fading hopes of an output curb by oil producers. A Federal Reserve official said prices in futures markets that indicate the US central bank will boost rates just once this year and next year appear “unduly pessimistic.”
The Shanghai Composite climbed 1.4 percent its highest level in nearly three months, as investors digested better than expected manufacturing surveys released over the weekend. Sentiment was also boosted after media reports suggested China plans to allow banks to convert one trillion yuan of bad loans into equity. The Hang Seng index dropped 1.6 percent.
The Nikkei tumbled 2.4 percent to end at a seven week low after the US dollar hit a 17-month low against the yen. Exporters Canon, Honda Motor, Nissan Motor and Toyota dropped on concerns that the strong yen may erode their profits. Banks Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial slumped while oil firms Inpex and JX Holdings retreated.
Both the S&P/ASX and All Ordinaries dropped 1.4 percent with energy stocks bearing the brunt of the selling after oil prices sold off sharply to hit a one-month low overnight on mounting skepticism that a global agreement to freeze output levels would be reached in Qatar later this month. Woodside Petroleum, Oil Search and Santos closed lower. Miners Rio Tinto and BHP Billiton declined as did the big four banks. The February trade deficit widened to A$3.41 billion from an upwardly revised deficit of A$3.14 billion in January. The Reserve Bank of Australia left its cash rate unchanged at 2.0 percent and escalated a call for a lower dollar to support exports.
The Kospi was down 0.8 percent. The Sensex dropped 2.0 percent after the Reserve Bank of India cut its repo rate by 25 basis points to 6.5 percent. However, there was disappointment over the RBI’s decision to leave the cash reserve ratio unchanged.
Global Stock Markets
Please remember, the value of investments and the income from them can do down as well as up. Funds that invest in overseas markets may be subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.
Looking forward*
March China and India service PMIs are released. Germany posts February industrial production. In the US, minutes from the March FOMC are published. Weekly EIA petroleum status report is released.
*Note — all releases are listed in local time.
Source: Fidelity
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